Executive Summary: As the sharing economy continues to gain popularity with workers, businesses, and consumers by offering increased job flexibility and consumer choice, courts and regulatory agencies have struggled with how to fit this new “virtual” workforce into a legal framework originally established to protect those employed in a traditional brick and mortar environment. A primary point of contention has been whether these workers should be classified as employees or whether they are properly treated as independent contractors. The Florida Legislature recently addressed this issue in the transportation industry by enacting a statute that will permit transportation network companies (TNCs) to lawfully classify their drivers as independent contractors for the purposes of Florida law if they meet the statute’s requirements.
This has great significance to TNCs (commonly referred to as “ride sharing” companies) and their drivers, because classification as an independent contractor means these workers will not be covered by certain state laws, such as the Florida Civil Rights Act of 1992 and Florida’s Workers’ Compensation Law, among others. The new statute will establish a legal framework for TNCs in Florida and preempt the regulation of TNCs by local governments.
Under the new Florida statute, a TNC driver “is” an “independent contractor”—and not an “employee” of the TNC—if all of the following criteria are met:
- The TNC does not unilaterally prescribe specific hours during which the TNC driver must be logged on to the TNC’s digital network;
- The TNC does not prohibit the TNC driver from using digital networks from other TNCs;
- The TNC does not restrict the TNC driver from engaging in any other occupation or business; and
- The TNC and TNC driver agree in writing that the TNC driver is an independent contractor with respect to the TNC.
The law will be codified as Florida Statute § 627.748 and will take effect July 1, 2017. In addition to the independent contractor provisions, the new law will also set forth requirements for fare transparency, background checks and substance abuse policies for TNC drivers, and automobile insurance coverage, among other provisions.
New Florida Law Will Not Control in Litigation Based on Federal Laws. While the new Florida statute sets forth a relatively clear four-prong test for classification as an “independent contractor” (and will preempt contrary local laws in Florida), it will not control in litigation involving worker classification under federal laws. Many federal laws, including federal anti-discrimination laws, the Family and Medical Leave Act of 1993 (FMLA), and the employment tax provisions of the Internal Revenue Code (IRC), apply only to employees and not to independent contractors. The determination of whether workers should be considered employees or independent contractors under these laws will continue to be controlled by federal law, regardless of the provisions of the new Florida statute. Generally, courts and regulatory agencies use either the “economic realities” test or the “common law” test when determining whether a worker may be classified as an independent contractor under federal law. Each of these tests looks at the degree of control exercised by the alleged employer and varies considerably from the standard in the new Florida statute. Thus, the fact that a TNC driver is an independent contractor under Florida law does not necessarily mean that the driver may be classified as an independent contractor under federal law.
Possibility of Conflicting Obligations Under Federal and Florida Law. The language of the new Florida statute suggests that classification as an independent contractor is mandatory if the statute’s four conditions are met. Under federal law, unless a worker meets the applicable test for independent contractor status, the employer may not classify the worker as an independent contractor. Thus, the differences between the standards for independent contractor classification under federal law and the new Florida statute leave open the very real possibility that a TNC could be required to classify a worker as an independent contractor under Florida law, and at the same time be prohibited from classifying that same worker as an independent contractor under federal law.
While the apparent conflict between federal law and the Florida statute may appear to be only theoretical, many lawsuits have been filed by TNC drivers challenging their classification as independent contractors. Some courts have allowed those cases to survive motions for summary judgment, thus creating a real possibility that a judge or jury will find that the drivers are employees. See, e.g., Razak v. Uber Technologies, Inc. (E.D. Pa. Oct. 7, 2016) (refusing to dismiss TNC driver’s misclassification lawsuit under the FLSA); cf. O’Connor v. Uber Technologies, Inc. (N.D. Cal. Mar. 11, 2015) (denying employer’s motion for summary judgment on misclassification claims under California law, which determines worker classification using a control test somewhat similar to that used in cases under the IRC). Accordingly, it appears that once the new Florida law takes effect, TNCs will be required to classify their Florida drivers as independent contractors, even though doing so creates a material risk of liability under federal laws. TNCs may have an opportunity to minimize this risk by restructuring their relationships with their drivers.
Conclusion. Overall, the anticipated impact of Florida Statute § 627.748 will be limited. Companies should be aware that the statute will govern only relationships between TNCs (such as Uber, Lyft, and similar companies operating in Florida) and TNC drivers, but will not extend beyond that industry. Also, the new law will offer limited protections to the TNCs that classify their drivers as “independent contractors” under the four-prong test since it will not apply in litigation brought under federal laws.